In this article, we discuss the following topics:
- Where is the increasing focus on end users coming from?;
- The benefits of direct contact with end users;
- The advantages of commercial collaborations with wholesalers;
- The conclusions of GROUP7
In 2016, roughly 50% indicated that they were expecting a direct route to end users
Several years ago back in September 2016, we organised a business event. One of the topics was ‘the direct route from producers to the catering or hospitality sectors’. Martin van Dam (partner at GROUP7) asked the audience: “Who expects to see a direct route to end users within three years? Please raise your hand.” Roughly half the audience put their hands up. There is a video of it actually, I just checked.
What became of that? Not very much. Yes, you now have Foodl, VersTrade and Blinqed, for example, but they haven’t gotten a lot further than the startup phase yet. We are not seeing much more than modest initiatives towards a truly direct route – i.e. completely bypassing wholesalers.
Instead, what we are seeing is a lot of manufacturers wanting direct contact with end users. And not just the ones with major key accounts, but any relevant buyers. Several major manufacturers have been involved in projects in this area with us over recent years.
This article discusses the reasons why manufacturers are seeking direct contact with end users. We present the pros and cons of this kind of strategy, which aims to establish a relationship between manufacturers and professionals (chefs, caterers, bakers, etc.)
Where is the increasing focus on end users coming from?
1. In the food sector, wholesalers (the ‘middlemen’) actually always have the lowest margins.
That’s why wholesalers are always the first to come under pressure when facing hard times. They try to keep their heads above water by charging more money for their role in the chain. It only makes sense then, for manufacturers to rethink their partnerships with wholesalers.
2. End users are using internet resources for research.
This trend has increased dramatically over the past 10 years and is still growing. Before that time, trade fairs and field sales dominated here. Our own research shows that digital resources have been the most important channel for information and inspiration in the food industry (b2b) since 2017.
Most initial purchases are influenced by digital resources (67%). Digitalisation has made it much easier to reach end users with communications.
3. The costs of communication have dropped dramatically.
Compared to traditional advertising, online advertising is a lot cheaper. A sponsored post on Facebook or Instagram is not expensive at all really. And sharing content via social media channels only costs you a bit of time. You save on printing for direct mailings because emailing costs nothing. The cost of high-quality websites and webshops has also fallen sharply.
So it’s safe to say: “Manufacturers are targeting end users because they can.” But then what are the benefits of having such a direct relationship with end users?
The benefits of direct contact with end users
1. Trust and loyalty
No one can represent the brand better than the brand itself. The right story, told well, in your own ‘tone’ and with the ‘feel of the brand’. As a manufacturer, you have much more knowledge of the product, of the category and all the developments that go along with it. Marketers know how to accurately gauge customer considerations when it comes to buying, using or reselling one product or the other. Offering strong, relevant content to end users creates trust, it makes you an A-brand, and strengthens customer loyalty.
2. The entire range is on display
And perhaps the most important argument: if you have your own relationship with end users, you can market your entire range. Hardly any manufacturer has their entire range available with major wholesalers. Even the biggest players don’t manage to do that.
3. Reduction of dependency
As an entrepreneur or director, you want to be able to manage the results of your business. Dependency is a risk that is best avoided. In this respect, wholesalers pose a risk. Or as Dick Slootweg (Bidfood, the Netherlands) put it at a symposium some years ago: “Those who cannot create a ‘pull’ for their product themselves will soon be out of business anyway.”
In the revenue models for wholesalers, private labels and supplier contributions (in particular) hold a dominant position. And that contribution only increases the easier your product is to trade. That’s why wholesalers may start promoting their own brands, supporting other A-brands more commercially, or even restructuring your range. Don’t count too much on the loyalty of wholesalers because of your long-standing friendly cooperation.
4. Data collection
If you have access to customer data, you can improve how you sell. Since sales go through wholesalers, most manufacturers do not have access to that sought-after data. When you establish a direct, commercial relationship with your end users, you can create customer profiles. You will gradually be able to ask questions and start logging responses to your content. The profile data can get richer and richer. People sometimes say, “data is the new oil”, suggesting its high value. And on top of that: When you have customer data, you can communicate much more smoothly with end users.
Customer feedback also helps your business immensely. The more direct the feedback from customers, the better. Establishing a direct commercial relationship with end users makes getting feedback much easier.
5. Learning as an organisation
Digitalisation tends to shorten chains. All business becomes more direct. New business models become possible, often with developments that are hard to see coming. Will these new platforms dominate the market? Maybe.
The most important thing in this phase is to learn as an organisation. Establishing a direct relationship with end customers is easier said than done. Especially if your organisation is on the larger end, a lot of change management is involved. There will also have to be changes on the digital side: CRM, marketing automation and maybe e-commerce. If you started on time, that will soon prove to be an advantage. Otherwise, someone else who is more agile will soon come along and snatch away your market.
So do direct relationships with end users offer only advantages? Actually no, it’s a bit more nuanced. It’s also not usually a good idea to bet all your marketing budget on direct contact with end users.
The advantages of commercial collaborations with wholesalers
1. Customers look at wholesale webshops much more often than other channels
There’s no denying it: wholesale webshops are a great medium, as they receive very high traffic. Roughly 90% of your customers visit these sites at least once a week. Just try to replicate that as a manufacturer… it’s impossible.
60% of hospitality professionals also use these webshops as a channel for information and inspiration. Yet another top spot in the rankings of popular media.
2. Wholesalers are the best place to get an overview of the product range
Potential customers want to compare products. On average, 78% of first-time purchases involve comparing two or more brands. And wholesale webshops are particularly well suited for that purpose: You get an overview of the selection, can begin to spot the differences and assess the price ranges.
3. Playing by the rules
As long as your contact with end users is only commercial, wholesalers will not be overly concerned. Of course, wholesalers try to channel as much marketing cash as possible to themselves, but that kind of pressure should be manageable for a senior sales manager.
As soon as you also start selling through your own webshop or platform, you can expect a response. It’s entirely up to you if you decide you want to do something with that. We have business associates that have their own webshops and have managed to keep up a good relationship with wholesalers. Incidentally, some of them facilitate their deliveries through wholesalers. Others don’t.
4. You are (practically) dependent on wholesalers for distribution
If you not only want a commercial relationship with end users but also want to start supplying directly, you will soon discover how many logistical hassles are taken care of by wholesalers. Logistics partners can assist you with deliveries and take some of the pressure off.
Photo of PostNL
The conclusions of GROUP7
Direct commercial contact with end users is a must for manufacturers: acquiring new customers, growing your customer base with more products and keeping them interested. This does not necessarily mean that you will also be supplying outside wholesalers. We will discuss how to deal with that option in the next article.
Study by Hotel Management School Maastricht
Students from the Hotel Management School Maastricht conducted research for GROUP7 on ‘The producer as supplier.’ They concluded that there is a good opportunity for producers to supply hotels, restaurants and catering companies directly. They described the key critical success factors in their report. Based on the survey, we added 7 practical tips. Download a summary of the survey and tips.
Sources:
Travis, 2018. Via: https://www.thinkwithgoogle.com/consumer-insights/consumer-trends/b2b-buyers-online-and-offline/
Verduin, 2017, Het online oriëntatieproces van de eindverbruiker in de foodbranche, GROUP7
Edelman, 2010, Branding in the Digital Age: You’re Spending Your Money in All the Wrong Places, Harvard Business Review
In-house research by GROUP7, GROUP7 Professional Community